Q1 2026 Fidus Investment Corp Earnings Call

May 8, 2026

Operator: Good day, and welcome to the Fidus First Quarter 2026 Earnings Conference Call. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Operator: Good day, and Welcome to the Fidus First Quarter 2026 Earnings Conference Call. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Speaker #2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone.

Speaker #2: To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening, please go ahead.

Speaker #2: Thank you, Debbie, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's First Quarter 2026 earnings conference call. With me this morning are Ed Ross, Fidus Investment Corporation's chairman and chief executive officer, and Shelby Sherard, chief financial officer.

Jody Burfening: Thank you, Debbie, good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Q1 2026 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer, and Shelby Sherard, Chief Financial Officer. Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the investor relations page of the company's website at fdus.com. I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flows of Fidus Investment Corporation.

Speaker #2: Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the investor relations page of the company's website at fdus.com.

Speaker #2: I'd also like to call your attention to the customary Safe Harbor disclosure regarding forward-looking information, included on today's call. The conference call today will contain forward-looking statements including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flows of Fidus Investment Corporation.

Speaker #2: Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, May 7th, 2026, these statements are not guarantees of future performance.

Jody Burfening: Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, 7 May 2026, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors, including but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Ed. Good morning, Ed.

Speaker #2: Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors including but not limited to the factors set forth in the company's filings with the Securities and Exchange Commission.

Speaker #2: Fidus undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Ed.

Speaker #3: Good morning, Ed.

Speaker #4: Good morning, Jody. And good morning, everyone. Welcome to our first quarter 2026 earnings conference call. Today's call, I'll start with a review of our first quarter performance in our portfolio at QuarterEnd, and then share with you our outlook for 2026.

Edward H. Ross: Good morning, Jody, and good morning, everyone. Welcome to our Q1 2026 Earnings Conference Call. On today's call, I'll start with a review of our Q1 performance and our portfolio at quarter end, and then share with you our outlook for 2026. Shelby will cover the Q1 financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. Fidus' Q1 results were extremely strong from an income statement perspective. With an adjusted NII of $0.62 per share, our debt portfolio continued to over earn our base dividend of $0.43 per share and to support a payout of excess earnings to shareholders.

Ed Ross: Good morning, Jody, and good morning, everyone. Welcome to our Q1 2026 Earnings Conference Call. On today's call, I'll start with a review of our Q1 performance and our portfolio at quarter end, and then share with you our outlook for 2026. Shelby will cover the Q1 financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. Fidus' Q1 results were extremely strong from an income statement perspective. With an adjusted NII of $0.62 per share, our debt portfolio continued to over earn our base dividend of $0.43 per share and to support a payout of excess earnings to shareholders.

Speaker #4: Shelby will cover the first quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions.

Speaker #4: Fidus's first quarter results were extremely strong from an income statement perspective. With an adjusted NII of 62 cents per share, our debt portfolio continued to over-earn our base dividend of 43 cents per share, and to support a payout of excess earnings to shareholders.

Speaker #4: Adjusted NII grew 14.8% to 23.7 million dollars, reflecting a 13.1% increase in interest income on higher average income-producing assets along with higher fee income than last year.

Edward H. Ross: Adjusted NII grew 14.8% to $23.7 million, reflecting a 13.1% increase in interest income on higher average income producing assets along with higher fee income than last year. We ended the quarter with estimated spillover income of $1.14 per share. Deal activity was relatively modest during the quarter, including M&A transactions completed by our portfolio companies. Overall, our portfolio remains healthy, characterized by niche market leaders with traits that provide long-term barriers to entry and that ensure their value proposition and competitive positioning. Through our strict underwriting process, we ensure that we are selecting companies with proven resilient business models that generate recurring revenue and cash flow to service debt and to provide capital for growth. We remain focused on industries we know well in the lower middle market, leveraging our established relationships with deal sponsors.

Ed Ross: Adjusted NII grew 14.8% to $23.7 million, reflecting a 13.1% increase in interest income on higher average income producing assets along with higher fee income than last year. We ended the quarter with estimated spillover income of $1.14 per share. Deal activity was relatively modest during the quarter, including M&A transactions completed by our portfolio companies. Overall, our portfolio remains healthy, characterized by niche market leaders with traits that provide long-term barriers to entry and that ensure their value proposition and competitive positioning. Through our strict underwriting process, we ensure that we are selecting companies with proven resilient business models that generate recurring revenue and cash flow to service debt and to provide capital for growth. We remain focused on industries we know well in the lower middle market, leveraging our established relationships with deal sponsors.

Speaker #4: We ended the quarter with estimated spillover income of $1.14 per share. Deal activity was relatively modest during the quarter, including M&A transactions completed by our portfolio companies.

Speaker #4: Overall, our portfolio remains healthy, characterized by niche market leaders with traits that provide long-term barriers to entry, and that ensure their value proposition and competitive positioning.

Speaker #4: Through our strict underwriting process, we ensure that we are selecting companies with proven resilient business models that generate recurring revenue and cash flow to service debt and to provide capital for growth.

Speaker #4: We remain focused on industries we know well in the lower middle market, leveraging our established relationships with deal sponsors. For the second quarter of 2026, the board of directors declared a total dividend of 62 cents per share, which consists of a base dividend of 43 cents per share and a supplemental dividend of 19 cents per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on June 29th, 2026, to stockholders of record as of June 16th, 2026.

Edward H. Ross: For Q2 2026, the board of directors declared a total dividend of $0.62 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.19 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on 29 June 2026 to stockholders of record as of 16 June 2026. Net asset value held steady at $742 million at quarter end, or $19.55 per share. Originations in Q1 amounted to $118.7 million, nearly all of which consisted of first lien debt investments in support of both M&A transactions and debt recapitalizations.

Ed Ross: For Q2 2026, the board of directors declared a total dividend of $0.62 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.19 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on 29 June 2026 to stockholders of record as of 16 June 2026. Net asset value held steady at $742 million at quarter end, or $19.55 per share. Originations in Q1 amounted to $118.7 million, nearly all of which consisted of first lien debt investments in support of both M&A transactions and debt recapitalizations.

Speaker #4: At asset value held steady at $742 million, at QuarterEnd, or $19.55 per share. Originations in the first quarter amounted to $118.7 million, nearly all of which consisted of first-lean debt investments in support of both M&A transactions and debt recapitalizations.

Speaker #4: We also invested $1.8 million in equity securities of two new portfolio companies, consistent with our investment strategy of maintaining a portfolio that is structured to produce both high levels of current and recurring income and the potential for capital gains from monetizing equity investments.

Edward H. Ross: We also invested $1.8 million in equity securities of two new portfolio companies, consistent with our investment strategy of maintaining a portfolio that is structured to produce both high levels of current and recurring income and the potential for capital gains from monetizing equity investments. Subsequent to quarter end, we invested an additional $21.5 million in one new portfolio company. Proceeds from repayments and realizations totaled $73.1 million for Q1, resulting from a mix of M&A and refinancing activity, and we monetized equity investments in two portfolio companies, generating $3.9 million in realized gains. Offsetting these gains was a total of approximately $15 million in realized losses in connection with the conversion of City Connector's debt into equity.

Ed Ross: We also invested $1.8 million in equity securities of two new portfolio companies, consistent with our investment strategy of maintaining a portfolio that is structured to produce both high levels of current and recurring income and the potential for capital gains from monetizing equity investments. Subsequent to quarter end, we invested an additional $21.5 million in one new portfolio company. Proceeds from repayments and realizations totaled $73.1 million for Q1, resulting from a mix of M&A and refinancing activity, and we monetized equity investments in two portfolio companies, generating $3.9 million in realized gains. Offsetting these gains was a total of approximately $15 million in realized losses in connection with the conversion of City Connector's debt into equity.

Speaker #4: Subsequent to QuarterEnd, we invested in additional $21.5 million and one new portfolio company. Proceeds from repayments and realizations totaled $73.1 million, for the first quarter, resulting from a mix of M&A and refinancing activity, and we monetized equity investments in two portfolio companies, generating $3.9 million and realized gains.

Speaker #4: Offsetting these gains, was a total of approximately $15 million in realized losses in connection with the conversion of suited connectors debt into equity. Looking at net investment activity, which takes debt recapitalizations into an account, our portfolio grew by 46 million dollars in Q1.

Edward H. Ross: Looking at net investment activity, which takes debt recapitalizations into an account, our portfolio grew by $46 million in Q1. First lien investments comprised 87% of the debt portfolio, reflecting the ongoing migration towards first lien securities. Combined with our $149.6 million equity portfolio, we ended the quarter with a portfolio totaling $1.4 billion on a fair value basis equal to 102.5% of cost. Overall, the portfolio remains healthy from a credit quality perspective, supported by very solid underlying portfolio company performance. We ended the quarter with only 1 portfolio company on non-accrual that accounted for less than 1% of the total portfolio on both a fair value and cost basis. Our portfolio remains well-diversified by industry consisting of a mix of manufacturing, distribution, and services companies.

Ed Ross: Looking at net investment activity, which takes debt recapitalizations into an account, our portfolio grew by $46 million in Q1. First lien investments comprised 87% of the debt portfolio, reflecting the ongoing migration towards first lien securities. Combined with our $149.6 million equity portfolio, we ended the quarter with a portfolio totaling $1.4 billion on a fair value basis equal to 102.5% of cost. Overall, the portfolio remains healthy from a credit quality perspective, supported by very solid underlying portfolio company performance. We ended the quarter with only 1 portfolio company on non-accrual that accounted for less than 1% of the total portfolio on both a fair value and cost basis. Our portfolio remains well-diversified by industry consisting of a mix of manufacturing, distribution, and services companies.

Speaker #4: First-lean investments comprised $87% of the debt portfolio, reflecting the ongoing migration towards first-lean securities. Combined with our $149.6 million equity portfolio, we ended the quarter with a portfolio totaling $1.4 billion on a fair value basis, equal to $102.5% of cost.

Speaker #4: Overall, the portfolio remains healthy from a credit quality perspective, supported by very solid underlying portfolio company performance. We ended the quarter with only one portfolio company on non-accrual, that accounted for less than 1% of the total portfolio, on both a fair value and cost basis.

Speaker #4: Our portfolio remains well-diversified by industry, consisting of a mix of manufacturing, distribution, and services companies. In addition, we have a well-diversified group of software and IT services names, within our portfolio, that are exposed to both opportunities and risks associated with AI.

Edward H. Ross: In addition, we have a well-diversified group of software and IT services names within our portfolio that are exposed to both opportunities and risks associated with AI. This group represents about 32% of our total portfolio on a fair value basis. We haven't seen any negative impacts from AI on this portfolio. Importantly, nearly all of our debt investments in these companies are in highly structured first lien securities with at least two maintenance covenants, and all portfolio companies, except for one, are backed by high quality sponsors with proven track records in the space. The weighted average loan to value for this portfolio was approximately 42% this quarter, below our total portfolio weighted average loan to value of approximately 45% on a cost basis.

Ed Ross: In addition, we have a well-diversified group of software and IT services names within our portfolio that are exposed to both opportunities and risks associated with AI. This group represents about 32% of our total portfolio on a fair value basis. We haven't seen any negative impacts from AI on this portfolio. Importantly, nearly all of our debt investments in these companies are in highly structured first lien securities with at least two maintenance covenants, and all portfolio companies, except for one, are backed by high quality sponsors with proven track records in the space. The weighted average loan to value for this portfolio was approximately 42% this quarter, below our total portfolio weighted average loan to value of approximately 45% on a cost basis.

Speaker #4: This group represents about 32% of our total portfolio on a fair value basis. We haven't seen any negative impacts from AI on this portfolio.

Speaker #4: Importantly, nearly all of our debt investments in these companies are in highly structured first-lean securities, with at least two maintenance covenants, and all portfolio companies, except for one, are backed by high-quality sponsors with proven track records in the space.

Speaker #4: The weighted average loan-to-value for this portfolio was approximately 42% this quarter, below our total portfolio weighted average loan-to-value of approximately 45% on a cost basis.

Speaker #4: In addition, the current contractual duration of our debt investments in this category is 2.2 years, enhancing our ability to manage any tougher situations we might encounter down the road.

Edward H. Ross: In addition, the current contractual duration of our debt investments in this category is 2.2 years, enhancing our ability to manage any tougher situations we might encounter down the road. Equity investments in software and IT services companies totaled $16.1 million, or approximately 11% of our total equity portfolio on a fair value basis. In closing, our portfolio remains well-positioned to continue to generate adjusted NII in excess of our base dividend and to realize gains from monetizing equity investments. Although M&A activity is currently lackluster in light of the geopolitical uncertainties and associated market volatility, our pipeline of investment opportunities is decent, and our long-standing relationships with deal sponsors and lower middle market expertise position us to identify high-quality companies that meet our rigorous underwriting standards for investment.

Ed Ross: In addition, the current contractual duration of our debt investments in this category is 2.2 years, enhancing our ability to manage any tougher situations we might encounter down the road. Equity investments in software and IT services companies totaled $16.1 million, or approximately 11% of our total equity portfolio on a fair value basis. In closing, our portfolio remains well-positioned to continue to generate adjusted NII in excess of our base dividend and to realize gains from monetizing equity investments. Although M&A activity is currently lackluster in light of the geopolitical uncertainties and associated market volatility, our pipeline of investment opportunities is decent, and our long-standing relationships with deal sponsors and lower middle market expertise position us to identify high-quality companies that meet our rigorous underwriting standards for investment.

Speaker #4: Equity investments in software and IT services companies totaled $16.1 million, or approximately 11% of our total equity portfolio, on a fair value basis. In closing, our portfolio remains well-positioned to continue to generate adjusted NII and excess of our base dividend, and to realize gains from monetizing equity investments.

Speaker #4: Although M&A activity is currently lackluster in light of the geopolitical uncertainties, and associated market volatility, our pipeline of investment opportunities is decent and our long-standing relationships with deal sponsors and lower middle market expertise position us to identify high-quality companies that meet our rigorous underwriting standards for investment.

Speaker #4: We will, as always, manage the business for the long term, staying focused on our goals of preserving capital and generating attractive, risk-adjuster returns for our shareholders.

Edward H. Ross: We will, as always, manage the business for the long term, staying focused on our goals of preserving capital and generating attractive risk-adjusted returns for our shareholders. Now I'll turn the call over to Shelby to provide details on our financial and operating results. Shelby?

Ed Ross: We will, as always, manage the business for the long term, staying focused on our goals of preserving capital and generating attractive risk-adjusted returns for our shareholders. Now I'll turn the call over to Shelby to provide details on our financial and operating results. Shelby?

Speaker #4: Now I'll turn the call over to Shelby to provide details on our financial and operating results. Shelby?

Speaker #5: Thank you, Ed, and good morning, everyone. I'll review our first quarter results in more detail and close with comments on our liquidity position. Please note I will be providing comparative commentary versus the prior quarter, Q4, 2025.

Shelby Sherard: Thank you, Ed, and good morning, everyone. I'll review our Q1 results in more detail and close with comments on our liquidity position. Please note I will be providing comparative commentary versus the prior quarter, Q4 2025. Total investment income was $47.5 million for the 3 months ended 31 March. A $5.4 million increase from Q4, primarily driven by a $1.4 million increase in interest income, driven by increased average debt investments outstanding, and a $4.1 million increase in fee income due to a $6.9 million fee related to the refinancing of our debt investments in American Always, partially offset by lower origination and prepayment fees from investment activity.

Speaker #5: Total investment income was $47.5 million for the three months ended March 31st. A $5.4 million increase from Q4, primarily driven by a $1.4 million increase in interest income driven by increased average debt investments outstanding.

Speaker #5: And a $4.1 million increase in fee income due to a $6.9 million fee related to the refinancing of our debt investments in American Always, partially offset by lower origination and prepayment fees from investment activity.

Speaker #5: Total expenses, including tax provision, were $22.9 million for the first quarter, a $0.4 million higher than Q4, primarily driven by a $0.4 million increase in interest expense debt balances outstanding, a $1.4 million increase in base management and income incentive fees given the increase in assets under management and higher fee income in Q1, a $0.9 million increase in G&A expenses, G&A expenses were higher due to the write-off of unamortized deferred financing cost and incremental legal expenses related to our new registration statement, and the timing of annual audit and tax compliance expenses incurred in Q1.

Shelby Sherard: Total expenses, including tax provision, were $22.9 million for Q1, a $0.4 million higher than Q4, primarily driven by a $0.4 million increase in interest expense related primarily to higher average debt balances outstanding. A $1.4 million increase in base management and income incentive fees given the increase in assets under management and higher fee income in Q1. A $0.9 million increase in G&A expenses. G&A expenses were higher due to the write-off of unamortized deferred financing costs and incremental legal expenses related to our new registration statement and the timing of annual audit and tax compliance expenses incurred in Q1. These were offset by a $0.7 million decrease in the capital gains fee and a $1.8 million decrease in income tax provision related to the annual excise tax accrual in Q4.

Speaker #5: These were offset by $0.7 million decrease in the capital gains fee and a $1.8 million decrease in income tax provision related to the annual excise tax accrual in Q4.

Speaker #5: Net investment income, or NII, for the three months ended March 31st was $65 cents per share, versus $53 cents per share in Q4. Adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $62 cents per share in Q1 versus $52 cents in Q4.

Shelby Sherard: Net investment income, or NII, for the 3 months ended 31 March was $0.65 per share versus $0.53 per share in Q4. Adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.62 per share in Q1 versus $0.52 in Q4. For the 3 months ended 31 March, we recognized approximately $12.2 million of net realized losses related to a $15.8 million realized loss on the exit of our debt investments in Suited Connector, taking this non-accrual off our books, which was partially offset by a $3.9 million in realized gains on our equity investments in CIH Intermediate and Zonk.

Speaker #5: For the three months ended March 31st, we recognized approximately $12.2 million of net realized losses, related to a $15.8 million realized loss on the exit of our debt investments and suited connector, taking this non-accrual off our books, which was partially offset by a $3.9 million in realized gains on our equity investments in CIH Intermediate and Zonk.

Speaker #5: We ended the quarter with $682.2 million of debt outstanding, comprised of $260.5 million of SBA to ventures, $325 million of unsecured notes, $85.2 million outstanding on the line of credit, and $11.6 million of secured borrowings.

Shelby Sherard: We ended the quarter with $682.2 million of debt outstanding, comprised of $260.5 million of SBA debentures, $325 million of unsecured notes, $85.2 million outstanding on the line of credit, and $11.6 million of secured borrowings. Our net debt-to-equity ratio as of 31 March was 0.9 times. Our statutory leverage, excluding exempt SBA debentures, was 0.6 times. The weighted average interest rate on our outstanding debt was 5.2% as of quarter end. Turning now to portfolio statistics. As of 31 March, our total investment portfolio had a fair value of $1.4 billion. Our average portfolio company investment on a cost basis was $13.8 million, which excludes investments in seven portfolio companies that sold their operations or are in the process of winding down.

Speaker #5: Our net debt-to-equity ratio, as of March 31st, was 0.9 times. Our statutory leverage, excluding exempt SBA to ventures, was 0.6 times. The weighted average interest rate on our outstanding debt was 5.2% as of quarter-end.

Speaker #5: Turning now to portfolio statistics. As of March 31st, our total investment portfolio had a fair value of $1.4 billion. Our average portfolio company investment on a cost basis was $13.8 million, which excludes investments in seven portfolio companies that sold their operations or are in the process of winding down.

Speaker #5: We have equity investments in approximately 85.6% of our portfolio companies, with an average fully diluted equity ownership of 2%. The weighted average effective yield on debt investments was 12.5% as of March 31, a slight decrease versus 12.6% at the end of Q4.

Shelby Sherard: We have equity investments in approximately 85.6% of our portfolio companies, with an average fully diluted equity ownership of 2%. Weighted average effective yield on debt investments was 12.5% as of 31 March, a slight decrease versus 12.6% at the end of Q4. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on non-accrual, if any. Now I'd like to discuss our available liquidity. As of 31 March, our liquidity and capital resources included cash of $50.4 million, $139.9 million of availability on our line of credit, and $54 million of available SBA debentures, resulting in total liquidity of approximately $244.2 million.

Speaker #5: The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on non-accrual, if any.

Speaker #5: Now I'd like to discuss our available liquidity. As of March 31st, our liquidity and capital resources, including cash of $50.4 million, $139.9 million of availability on our line of credit, and $54 million of available SBA to ventures, resulting in total liquidity of approximately $244.2 million.

Speaker #5: Now I'll turn the call back to Ed for concluding comments.

Shelby Sherard: Now I'll turn the call back to Ed for concluding comments.

Speaker #1: Thanks, Shelby. As always, I'd like to thank our team and the board of directors at FIDUS for their dedication and hard work, and our shareholders for their continued support.

Edward H. Ross: Thanks, Shelby. As always, I'd like to thank our team, the board of directors at Fidus for their dedication and hard work, and our shareholders for their continued support. I will now turn the call over to Debbie for Q&A. Debbie?

Ed Ross: Thanks, Shelby. As always, I'd like to thank our team, the board of directors at Fidus for their dedication and hard work, and our shareholders for their continued support. I will now turn the call over to Debbie for Q&A. Debbie?

Speaker #1: I will now turn the call over to Debbie for Q&A. Debbie?

Speaker #6: We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: We will now begin the question-and-answer session. The first question is from Robert Dodd with Raymond James. Please go ahead. Excuse me, I just put Thomas C. Lauer on the podium. My apologies. Robert will be next. Thomas C. Lauer with Raymond-

Speaker #6: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Speaker #6: The first question is from Robert Dodd with Raymond James. Please go ahead. Excuse me, I just put Christopher Nolan on the podium. My apologies.

Speaker #6: Robert will be next. So, Christopher Nolan with Raymond Salman.

Edward H. Ross: That's okay.

Ed Ross: That's okay.

Operator: Solman. Yes, please go ahead.

Speaker #1: That's okay.

Speaker #6: Yes. Please go ahead.

Thomas C. Lauer: Obviously, they're preferring the person with better looks over Robert. I'm honored.

Speaker #1: Obviously, they're preferring the person with better looks over Robert, so I'm honored.

Speaker #7: Well done there.

Edward H. Ross: Well done there.

Ed Ross: Well done there.

Speaker #8: No offense, Robert. No offense, Robert. Shelby, were there any non-recurring items in the quarter? Am I missing your comments?

Thomas C. Lauer: No offense, Robert. Shelby, were there any non-recurring items in the quarter or I missed in your comments?

Speaker #6: No, we did. I incur a rather large fee that I'd characterize as more of a one-time fee. It was kind of about $6.97 million related to the American Always debt refinancing.

Shelby Sherard: No, we did incur a rather large fee that I'd characterize as more of a one-time fee. It was kind of about $6.97 million related to the American Always debt refinancing. That drove the fee income in Q1 and kind of the beat versus consensus.

Speaker #6: So that's rove the fee income in Q1 and kind of the beat versus consensus.

Speaker #8: Okay. That's really it for me. Thank you very much.

Thomas C. Lauer: Okay. That's really it for me. Thank you very much.

Speaker #1: Thank you, Chris.

Edward H. Ross: Thank you, Chris.

Ed Ross: Thank you, Chris.

Speaker #6: The next question is from Robert Dodd with Raymond James. Please go ahead.

Operator: The next question is from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Good morning, and thank you, Chris, for letting me go second. Appreciate it. Congratulations to Shelby Sherard and team for a really good Q4. A question about that American Always fee. I mean, if I look at, I mean, the position size is about, you know, just on, you know, $50 million now. Obviously it was smaller than that before. A $6.9 million fee on a refi financing of a position that size seems pretty high. Obviously, the first 3 last Q4 was marked well above cost. There was some oddities, differences in how the prior thing structured. Are there any other, is it a normal asset that just happened to repay and generate a really good fee?

Speaker #9: Good morning. And thank you, Chris, for letting me go second. I appreciate it. And congratulations there, Shelby, and team for a really good quarter.

Speaker #9: A question about that American Always fee. I mean, if I look at it, I mean, the position size is about just on $50 million now.

Speaker #9: And obviously, it was smaller than that before. A $6.9 million fee on a refinancing of a position that size seems pretty high. Now, obviously, the first thing last quarter was marked well above cost.

Speaker #9: So there was some oddities. Differences in how the prior thing was structured. Are there any other is it a normal asset that just happened to repay and generate a really good fee, or was there something unusual about the structure of that asset?

Robert Dodd: Was there something unusual about the structure of that asset? I'm just kind of trying to get a feel. Obviously, probably not gonna happen every quarter, but can this kind of outsized refinancing fee happen again in different assets?

Speaker #9: I'm just kind of trying to get a feel, obviously. Probably not going to happen every quarter, but can this kind of outsize refinancing fee happen again in different assets?

Speaker #1: Sure. It's a great question, Robert. I think could it happen again to a certain degree? To this magnitude, I mean, sure, anything's possible. But it's a pretty healthy fee, as you've highlighted.

Edward H. Ross: Sure. It's a great question, Robert. I think, you know, could it happen again? To a certain degree. To this magnitude, I mean, sure, anything's possible, but it's a pretty healthy fee, as you've highlighted. It's not the norm of every credit by any stretch of the imagination. We have a few other investments where we have fees that can be earned on the back end. What I would say in this case is, you know, obviously, American Always has been in our portfolio for a while. There was a point in time where there was a need for capital on a relatively quick basis, and we ended up being the source of that capital.

Ed Ross: Sure. It's a great question, Robert. I think, you know, could it happen again? To a certain degree. To this magnitude, I mean, sure, anything's possible, but it's a pretty healthy fee, as you've highlighted. It's not the norm of every credit by any stretch of the imagination. We have a few other investments where we have fees that can be earned on the back end. What I would say in this case is, you know, obviously, American Always has been in our portfolio for a while. There was a point in time where there was a need for capital on a relatively quick basis, and we ended up being the source of that capital.

Speaker #1: And it's not the norm of every credit by any stretch of the imagination. We have a few other investments where we have fees that can be earned on the back end.

Speaker #1: And what I would say in this case is, obviously, American Always has been in our portfolio for a while. There was a point in time where there was a need for capital on a relatively quick basis.

Speaker #1: And we ended up being the source of that capital. And so we priced that capital in accordance with what we thought the numbers should be, if you will.

Edward H. Ross: We priced that capital in accordance with what we thought, you know, the numbers should be, if you will. This is not like, okay, this is the business going forward or anything like that. It's just, you know, we are a solution provider. We ended up providing a solution that was needed, and we were paid accordingly for that solution, is the way I would think about it.

Ed Ross: We priced that capital in accordance with what we thought, you know, the numbers should be, if you will. This is not like, okay, this is the business going forward or anything like that. It's just, you know, we are a solution provider. We ended up providing a solution that was needed, and we were paid accordingly for that solution, is the way I would think about it.

Speaker #1: And so, but it's not this is not like, "Okay, this is the business going forward," or anything like that. It's just we are a solution provider.

Speaker #1: We ended up providing a solution that was needed. And we were paid accordingly for that solution is the way I would think about it.

Speaker #9: Got it. Got it. Thank you. I'm not asking, but I wonder if that was COVID timing-related. Because obviously, it was in before then. So I appreciate that.

Robert Dodd: Got it. Got it. Thank you. I not asking, but I wonder if that was COVID timing related, 'cause obviously it was Zoom before then. I appreciate that. Just the more general. I mean, you characterized the pipeline as decent, but the market as kind of lackluster, which obviously is a theme across the space, not surprisingly, with the number of macro uncertainties. I mean, would you characterize it, is that lackluster market is driven by these uncertainties? I mean, you know, between, you know, oil, you know, macro, et cetera. Do you need more or do you think the market needs more certainty on that for the PE market in your segment to show a little bit more life?

Speaker #9: And then just the more general, I mean, Ed, you characterized the pipeline as or the pipeline is decent for the market as kind of lackluster, which obviously is a theme across the space.

Speaker #9: Not surprisingly, with the number of macro uncertainties. I mean, would you characterize it is that lackluster market is driven by these uncertainties? I mean, between oil, macro, etc., and do you need more do you think the market needs more certainty on that for the PE market in your segment to show a little bit more life?

Edward H. Ross: Sure. Great question. Let me give you a little color on just what we've experienced in Q1 and whatnot. You know, as, you know, most people in this space felt, you know, deal flow was more modest in nature and when we believe largely due to seasonal patterns, and I'm talking about Q1. You know, and then, you know, that was prior to the geopolitical conflict in the Middle East. You know, also at that time, general expectations were for an increase in both deal flow and investment activity throughout the year. You know, as we sit here today, we still have confidence in a pickup in activity, but the pace will be somewhat dependent upon a reduction in the current level of uncertainty that's in the world today.

Ed Ross: Sure. Great question. Let me give you a little color on just what we've experienced in Q1 and whatnot. You know, as, you know, most people in this space felt, you know, deal flow was more modest in nature and when we believe largely due to seasonal patterns, and I'm talking about Q1. You know, and then, you know, that was prior to the geopolitical conflict in the Middle East. You know, also at that time, general expectations were for an increase in both deal flow and investment activity throughout the year. You know, as we sit here today, we still have confidence in a pickup in activity, but the pace will be somewhat dependent upon a reduction in the current level of uncertainty that's in the world today.

Speaker #1: Sure. Great question. Let me give you a little color on just what we've experienced in Q1 and whatnot. But as most people in this space felt, deal flow was more modest in nature when we believe largely due to seasonal patterns.

Speaker #1: And I'm talking about Q1. And then that was prior to the geopolitical conflict in the Middle East. And also at that time, general expectations were for an increase in both deal flow and investment activity throughout the year.

Speaker #1: As we sit here today, we still have confidence in a pickup in activity. But the pace will be somewhat dependent upon a reduction in the current level of uncertainty that's in the world today.

Edward H. Ross: You know, as we sit here today, there's quite a bit of pent-up demand in M&A. That's a concept that we've, you know, it's not new. We've all heard. You know, the good news from our perspective, though, is the fragmented nature of the lower middle market and its large overall size. You know, this fact should continue to provide ample investment opportunities for us to pursue, no matter if M&A picks up or does not. We really like that aspect of the lower middle market. There's still activity going on as we sit here today, but it's clearly not at anything close to robust levels. We do have investment opportunities with, you know, existing portfolio companies as well as, you know, new investment opportunities, but again, more lackluster relative to robust times, if you will.

Speaker #1: As we sit here today, there's quite a bit of pent-up demand in M&A, and that's a concept that we've it's not new. We've all heard.

Ed Ross: You know, as we sit here today, there's quite a bit of pent-up demand in M&A. That's a concept that we've, you know, it's not new. We've all heard. You know, the good news from our perspective, though, is the fragmented nature of the lower middle market and its large overall size. You know, this fact should continue to provide ample investment opportunities for us to pursue, no matter if M&A picks up or does not. We really like that aspect of the lower middle market. There's still activity going on as we sit here today, but it's clearly not at anything close to robust levels. We do have investment opportunities with, you know, existing portfolio companies as well as, you know, new investment opportunities, but again, more lackluster relative to robust times, if you will.

Speaker #1: The good news from our perspective, though, is the fragmented nature of the lower middle market and its large overall size. This fact should continue to provide ample investment opportunities for us to pursue, no matter if M&A picks up or does not.

Speaker #1: We really like that aspect of the lower middle market. So there's still activity going on as we sit here today, but it's clearly not anything close to robust levels.

Speaker #1: And we do have investment opportunities with both existing portfolio companies as well as new investment opportunities. But again, more lackluster relative to robust times, if you will.

Edward H. Ross: You know, at the end of the day, we expect it to be, you know, an okay to decent originations quarter. We expect repayments actually to probably be on the lighter side. I say all that, a lot of things can change. A lot of deals that we think are gonna close may not close, so who knows. That would be our expectation as we sit here today is a, you know, help, you know, some decent growth this quarter in the portfolio, but a little lighter on the repayment side overall.

Speaker #1: At the end of the day, we expect it to be an okay to decent originations quarter. We expect repayments actually to probably be on the lighter side.

Ed Ross: You know, at the end of the day, we expect it to be, you know, an okay to decent originations quarter. We expect repayments actually to probably be on the lighter side. I say all that, a lot of things can change. A lot of deals that we think are gonna close may not close, so who knows. That would be our expectation as we sit here today is a, you know, help, you know, some decent growth this quarter in the portfolio, but a little lighter on the repayment side overall.

Speaker #1: Now, I say all that, a lot of things can change. A lot of deals that we think are going to close may not close.

Speaker #1: So who knows? But that would be our expectation as we sit here today, as some decent growth this quarter in the portfolio, but a little lighter on the repayment side.

Speaker #1: Overall. Hoping that gives you some.

Robert Dodd: Got it.

Edward H. Ross: Hopefully that gives you.

Ed Ross: Hopefully that gives you.

Speaker #9: Got it. Yeah. That is very helpful. Thank you. And then just kind of following on the next part of that really is spreads. Obviously, your year portfolio yields bear down a tiny bit versus Q4.

Robert Dodd: Yeah, that is very helpful. Thank you. Just kind of following on the next part of that really is spreads. Obviously, your yield, portfolio yields you're down a tiny bit versus Q4. Looking for and obviously the spreads are kind of stable as well, I think. Looking forward, I mean, there's talk in the marketplace that it's certainly the larger players more upmarket about spread expansion. You know, maybe that's impacted by the flows in the private perpetual vehicles. I mean, what are your thoughts on spreads in your end of the market? Do you think stability is more likely, or do you think there's actually a prospect for expansion in the smaller end of the market?

Speaker #9: Looking for, and obviously, the spread's kind of stable as well, I think. Looking forward, I mean, there's talk in the marketplace that it's certainly the larger players, more up-market, talking about spread expansion.

Speaker #9: But maybe that's impacted by the flows in the private perpetual vehicles. I mean, what are your thoughts on spreads in your end of the market?

Speaker #9: Do you think stability is more likely, or do you think there's actually a prospect for expansion in the smaller end of the market? And obviously, I would differentiate that between the overall market and maybe what you're seeing on the software side.

Robert Dodd: Obviously, I would differentiate that between the overall market and maybe what you're seeing on the software side.

Speaker #1: Sure. Great question. What we are seeing what I would say is wider spreads, but I'll also say, and this is where we like to play the most, is for truly great assets, great operating companies, they're continues to be a high level of competition.

Edward H. Ross: Sure. Great question. You know what, we are seeing, you know, what I would say is wider spreads, but I'll also say, and this is where we like to play the most, is, you know, for truly great assets, great operating companies. You know, there continues to be a high level of competition, albeit slightly better pricing, relative to, you know, prior to the conflict. You know, but it's a, it's a situation where I think there is ample capital out there and so there is competition and, but for the right assets. You know, obviously we still think the spreads are extremely attractive and the terms are also, you know, remain very strong in the lower middle market in terms of covenants, security, what have you.

Ed Ross: Sure. Great question. You know what, we are seeing, you know, what I would say is wider spreads, but I'll also say, and this is where we like to play the most, is, you know, for truly great assets, great operating companies. You know, there continues to be a high level of competition, albeit slightly better pricing, relative to, you know, prior to the conflict. You know, but it's a, it's a situation where I think there is ample capital out there and so there is competition and, but for the right assets. You know, obviously we still think the spreads are extremely attractive and the terms are also, you know, remain very strong in the lower middle market in terms of covenants, security, what have you.

Speaker #1: Albeit slightly better pricing relative to prior to the conflict. But it's a situation where I think there is ample capital out there. And so there is competition.

Speaker #1: And but for the right assets, obviously, we still think the spreads are extremely attractive and the terms are also remain very strong in the lower middle market in terms of covenants, security, what have you.

Speaker #1: So, there are opportunities to increase spreads, but I would argue for great assets, the competition is still meaningful, if you will.

Edward H. Ross: There is opportunities to increase, you know, spreads, you know, but I would argue for great assets. The competition is still, you know, meaningful, if you will.

Ed Ross: There is opportunities to increase, you know, spreads, you know, but I would argue for great assets. The competition is still, you know, meaningful, if you will.

Speaker #9: Got it. Got it. I appreciate it. Thank you. And again, congratulations on the quarter.

Robert Dodd: Got it. Got it. I appreciate it. Thank you.

Edward H. Ross: Thank you.

Ed Ross: Thank you.

Robert Dodd: Again, congratulations on the quarter.

Speaker #1: Thanks, Robert. Good talking to you.

Edward H. Ross: Thanks, Robert. Good talking to you.

Ed Ross: Thanks, Robert. Good talking to you.

Speaker #2: Again, if you have a question, please press star, then one. At this time, we have no further questions in the queue. So this concludes yeah, this concludes our question and answer session.

Operator: Again, if you have a question, please press star then one. At this time, we have no further questions in the queue.

Edward H. Ross: Okay.

Ed Ross: Okay.

Operator: this-

Edward H. Ross: Well, thank you. Thank you, Debbie.

Ed Ross: Well, thank you. Thank you, Debbie.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Ed Ross for closing remarks.

Speaker #2: I would like to turn the conference back over to Ed Ross for closing remarks.

Speaker #1: Well, thank you, Debbie. And thank you, everyone, for joining us this morning. We look forward to speaking with you on our second quarter call in early August.

Edward H. Ross: Well, thank you, Debbie. Thank you everyone for joining us this morning. We look forward to speaking with you on our Q2 call in early August. Have a great day and a great weekend.

Operator: Well, thank you, Debbie. Thank you everyone for joining us this morning. We look forward to speaking with you on our Q2 call in early August. Have a great day and a great weekend.

Speaker #1: Have a great day and a great weekend.

Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.